Australia - Delayed Reaction

Reassuring cool air greeted David Kemp as he entered the Nusa Dua hotel on a hot Bali morning in June 2002. Inside, the leaders of the World Wildlife Fund were assembled to celebrate World Environment Day by bestowing their most prestigious honour on Australia's environment minister - the "Gift of the Earth" award for preserving the natural beauty of the wetlands. A gracious Kemp, who was sharing the honour with his counterparts from Indonesia and Papua New Guinea, remarked with pleasure that the award "highlights the fact that the environment is everybody's business throughout the world".

But in Canberra, the Prime Minister, John Howard, was about to deliver a World Environment Day message of his own that would ricochet around world capitals. Rising to his feet in Parliament he pronounced that Australia had formally decided not to ratify the Kyoto agreement on climate change. "For us to ratify Kyoto would cost us jobs and damage our industry," Howard said. "The national interest does not lie in ratifying Kyoto."

Almost five years on, that single decision still defines Australia's stand on climate change in the eyes of many. Internationally, Australia is lumped alongside the US as a rogue state in the fight against global warming. We are attacked for being, per head, the largest emitters of greenhouse gases in the world.

Today, as Australians look anxiously at their parched landscapes, evaporating rivers, declining rainfall and record temperatures, Howard is facing a national revolt over his stand on climate change. In the past year, the public, prominent business leaders and the state premiers have all rejected the simple, immutable doctrine he pursued for almost a decade: that he would not act to put a price on greenhouse gas pollution caused by the industries that have enriched Australians as surely as they have caused global warming.

Paul Anderson, who once led the resources giant BHP and now sits on the board of BHP Billiton, warns bluntly that Australians will soon have to face reality. "The first step is we want less carbon dioxide and there is going to be a cost," he told the Herald from his home in Maine, in the US. It is a warning echoed by the head of the Australian energy giant AGL, Paul Anthony, and the Australian of the Year, Tim Flannery, who now spends his days briefing Australian companies, including mining companies, on climate change.

"You can see the social licence to operate conventional coal-fired power stations around the world being withdrawn virtually by the week," says Flannery. "Mining companies see what is happening. The world has moved on and Australia finds itself in the position where it is very vulnerable because there's been no action. We've lost a decade."

Until last year, Howard was driven by two fundamental beliefs. He and some key ministers, including Kemp, were never fully convinced by the science that climate change was caused by human activity. As a result, Howard gave less weight to scientific, public service and community opinion in deciding his response. Instead, he set great store by advice from a small group of corporate leaders in Australia's resource industries, among them the former Western Mining boss, Hugh Morgan, and successive heads of Rio Tinto, Brian Horwood and Charlie Lenegan. Documents, emails and interviews with many of the key players over the past decade lent weight to this.

Kemp, who has since retired from politics, told the Herald last week that during his three years as environment minister he always had doubts that climate change was caused by human activity, and he remains sceptical today.

"There was no doubt about the fact that the climate was shifting," Kemp said. "The extent to which that change was due to human agency was much less clear in the data. There were aspects of the data that appeared to conflict with that hypothesis".

The CSIRO's leading atmospheric scientist at the time, Graeme Pearman, recalls Kemp's scepticism when he was briefing the minister on a major report on climate change. "I always felt he was sceptical and it is clear he was the not the only senior member of the Liberal Party who was," Pearman says.

This scepticism inside the Government led it to pursue what was called the "no regrets" policy on climate change. "Any action that Australia took should be on a 'no regrets' basis," Kemp said. "It meant, where it is possible to take action without damaging Australia's economy and without adding to the inefficiencies of the economy, then action should be taken."

Put another way, policies were largely rejected if the business advisers Howard trusted could mount a convincing argument against them. From the start, Morgan and his allies argued against Kyoto because it did not compel developing nations such as China, India and Brazil to cut their emissions. This, they said, would severely penalise Australian companies if Kyoto was ratified. While few business leaders were as forthright in public as Morgan, their lobbyists delivered the same message to Canberra.

Records of meetings between Howard and these key business figures reveal his determination to avoid putting a cost or tax on carbon dioxide pollution. What was lacking was advice giving the Government a detailed cost on the price of not taking action on climate change.

Now, as Howard and his new Environment Minister, Malcolm Turnbull, scramble to fashion a new policy, many are asking: will the Government's trusted business advisers essentially still determine Australia's climate change policy as they have in the past? And will what emerges be too little, too late?

Few Australians remember that in 1997, Howard's first environment minister, Robert Hill, signed the Kyoto Protocol on behalf of Australia, calling it "a landmark agreement for the global environment" and "a win-win" for the country. Hill not only set up the Australian Greenhouse Office but argued for Australia to put a price on greenhouse gas pollution by setting up a carbon trading system - a policy Howard and Turnbull have resurrected 10 years later.

Then, the world's leading scientists on the Intergovernmental Panel on Climate Change had found that "the balance of evidence suggests a discernible human influence on global climate". It was this momentous finding that led the world's leaders to draft the Kyoto Protocol to cut carbon emissions.

"Hill was an extremely good minister," Pearman said. "He identified the difference between the mainstream science on climate change and the so-called sceptics and made a decision he was going to trust the mainstream science. I think we've gone backwards since then."

From the outset, Hill faced an unrelenting campaign led by Morgan, who not only had Howard's ear but had earned respect in the Liberal Party as a prodigious fund-raiser. Morgan did not respond to the Herald's request to be interviewed for this piece. But while much has been written about a "greenhouse mafia" who ran Australia's policy behind closed doors, Morgan and his allies argued their case not only in the back rooms but in the boardrooms, newsrooms and lounge rooms of the country, openly, loudly and publicly.

Morgan co-chaired a showdown conference in Canberra in 1997 with the head of the conservative US lobby group Frontiers of Freedom, whose supporters included American fossil fuel industries. Taking the microphone at the conference, Hill stood his ground, telling the sceptics bluntly: "I have stated many times, and will do so again, that Australia accepts the balance of the scientific evidence which suggests that human activity is accelerating the increase in the Earth's average temperature."

And he warned prophetically: "No country can ignore the potential ramifications - least of all Australia, which is already so vulnerable to natural climatic extremes of drought and flood associated with El Nino …"

But Hill would be the last Howard environment minister to so forcefully put the case against the sceptics until Turnbull was appointed almost a decade later.

Morgan began backing prominent science sceptics in Australia, most famously the Melbourne-based Lavoisier Group, which starkly warned Liberal backbenchers that the Kyoto agreement was "the most serious challenge to our sovereignty since the Japanese fleet entered the Coral Sea on May 3, 1942".

But Morgan's real success was not in the propaganda war but in the boardroom battle. In 2000 the Business Council of Australia was struggling to come to grips with the challenge of climate change. Anderson, then chief executive of BHP and a key member of the council, called a meeting of the leading business players to discuss their response.

"I held a party and nobody came," he says. "They sent some low-level people that almost read from things that had been given to them by their lawyers. Things like, 'Our company does not acknowledge that carbon dioxide is an issue and, if it is, we're not the cause of it and we wouldn't admit to it anyway."'

While Anderson was no fan of the Kyoto agreement, he was convinced climate change was real and BHP should get out in front on the issue. He believed the solution was a carbon tax that would put a cost on greenhouse gas pollution to force down emissions.

Others backed Hill's idea for a carbon emissions trading system, a market-driven scheme that Hill had successfully argued for at Kyoto. Stripped of its complexity, an emissions trading scheme allows companies to trade their polluting emissions with others who are making cuts. This lets the market put a price on carbon dioxide pollution. But it only works in bringing down greenhouse gases if the government sets a firm, measurable target that cuts the country's overall emissions.

The majority of Australian companies, however, simply didn't want any price put on greenhouse gas emissions. In the end, they were saved by Washington. In early 2001, George Bush took control of the White House and announced that the US would not ratify either. Howard made it clear that without US support, Australia would not ratify Kyoto. When he went to the polls in 2001 he was ready to abandon it. In his new ministry, Hill was moved to defence and Kemp, a sceptic, was given environment.

While the sceptics rejoiced in Canberra and Washington, scientists around the world were increasingly gripped by the urgency of climate change. That year the Intergovernmental Panel on Climate Change had intensified its warning that greenhouse gases were rising, "as a result of human activities", causing surface air temperatures and subsurface oceans temperatures to rise.

In March 2002 satellite pictures showing the collapse of the massive Larsen B ice shelf in Antarctica sent shock waves among scientists, who attributed the collapse to rising temperatures. Many Australian scientists not only rejected the sceptical view coming from their new minister, they were fearful that climate change was accelerating at an alarming rate.

Kemp and Howard knew their challenge was to come up with a credible post-Kyoto plan. As scientific and public alarm was mounting, so, too, were the concerns of many business leaders, premiers - led by NSW's Bob Carr - and public servants. In 2003 the head of Kemp's department, Roger Beale, put together a strategy - supported by his counterparts in Treasury, the Industry department and Foreign Affairs - to again examine how a carbon trading scheme might work for Australia.

While Morgan had by now parted ways with Western Mining, he remained ferocious in his opposition and Howard listened to him. As one key Government figure put it: "There was no doubt that Hugh was a person who had very high respect within the Government and he didn't have to say very much to be very influential." By August 2003 Howard had killed off the Beale plan and the Government was left scrambling to come up with a replacement strategy.

"Greenhouse policy is in a state of chaos," the then head of the Australian petroleum lobby group, Barry Jones, emailed colleagues. "It appears there was no fall-back option to the emissions permit trading package that cabinet rejected a fortnight ago."

But Howard and Kemp had been working on ambitious plans with Washington which the Prime Minister discussed with industry players, led by the Rio Tinto executives Brian Horwood and Sam Walsh. According to a leaked account of the meeting written by Walsh, "technology would be the long-term solution to greenhouse issues …".

Working closely with Washington and the leaders of Rio Tinto, Alcoa, BHP, Boral, Orica and other energy companies, the strategy was to rely heavily on pouring millions of taxpayer and investment dollars into "clean coal" technology. Australia and the US would lead the way in clean coal, a technology that captures emissions from coal-fired power, compresses them into a liquid form and pumps them into long-term storage deep underground. The technology was, and still is, hampered by its costs, its feasibility and the years it will take to become available on a large scale. But Bush and Howard persuaded China, Japan, South Korea and India, the world's biggest polluters, to sign up to the strategy.

Howard was sold on the idea by Rio Tinto's top scientist, Dr Robin Batterham, who had produced a report called Beyond Kyoto, arguing the viability of clean coal technology as the long-term solution to the greenhouse problem. Batterham was also the Government's chief scientist, despite complaints of a conflict of interest.

As one business leader wrote in a confidential email to his colleagues: "PM gets on well with Batterham - and has accepted his prescription as the central and (looks like) sole policy response to GHG [greenhouse gases]."

In May 2004 the resources-based companies led by Rio Tinto met Howard, his industry minister, Ian Macfarlane, and senior public servants to discuss the new greenhouse strategy. Notes of that meeting reveal Howard told them he wanted to set up a $500 million low emissions energy fund, focused on "accelerating Super Dooper [the Prime Minister's words] technology progress aimed at significantly reducing emissions".

A month later, Howard unveiled his energy white paper centred on the energy fund, which included $75 million for a solar cities project and $134 million for renewables technology. But Howard would not raise the mandatory target for renewables from 2 per cent, which would force a quicker transition to wind and solar. Nor would he put a cap on Australia's greenhouse emissions or support a carbon emissions trading scheme or a tax.

While Howard's statement was applauded by some in the resources sector, other business leaders and scientists were alarmed. "It was terrible," Pearman says. "It was just not a strategy, it was a hodgepodge of ideas. It is built on the assumption that we have plenty of time to adapt. And we don't."

But despite mounting public and business concern, Howard stuck to his strategy until last year, when, almost without warning, Australians reached a tipping point and began turning against the Government on the issue.

The seismic shift began in April, when a frustrated group of corporate leaders from the Business Roundtable on Climate Change released a report on the cost of climate change to Australia. Breaking the silence over the debate, they issued a stark warning that Government inaction would put at risk billions of dollars invested in tourism, livestock, wheat and insurance.

The report's sponsors included the head of BP Australia, Gerry Hueston, the head of Westpac, David Morgan, and the head of Insurance Australia Group, Mike Hawker, who had all worked with the Australian Conservation Foundation. They called on the Government to set up "a long, loud and legal framework" that would finally set a price in Australia for carbon dioxide pollution.

Their warning was supercharged when, just months later, Sir Nicholas Stern released his report for the British Government. Stern concluded that climate change was the greatest market failure in history and unless countries were prepared to sacrifice 1 per cent of their global wealth to mitigate the effects of climate change, the costs would be "on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century".

Adding to the pressure on Howard, the premiers released a report supporting a carbon trading system.

By late October, a rattled Howard began shifting position. He would later admit that his views on the science changed about this time. On the ABC's Lateline program he was asked by Tony Jones: "When was it that you ceased being a climate change sceptic and became, in effect, a true believer?" Howard replied: "I can't put an exact time on it, it wasn't a Damascus road conversion. I've always accepted that greenhouse gas emissions, carbon emissions, were potentially damaging. I think the scale of it has become more apparent as a result of the research."

At the Business Council of Australia's annual dinner last November Howard said he would set up a task group to look at carbon emissions trading - 10 years after his first environment minister pushed for it.

But two days later, when he brought leaders from Rio Tinto, Woodside and Shell and some of his business critics together to discuss the idea, Howard said: "I am not going to see this country's economic advantage thrown away in some panicky response to something that may not turn out to be as bad as many people are predicting."

The task force and its advisory group is confined to business leaders, lobbyists and public servants. Already the business council and companies such as Rio Tinto have tentatively supported a trading scheme, but the devil is in the detail. Ian Dunlop, the former oil executive who first advised Hill on his scheme, is worried that unless there is a tough, mandatory cap or target for Australia's emissions, a trading scheme will not be effective.

Turnbull insists that Australia "has led the world on climate change", saying that Europe intends to follow his recent announcement that incandescent light bulbs will be phased out. Like Howard, he defends the decision not to ratify Kyoto and says Australia is one of the few countries on track to meet its Kyoto targets. But Carr points out that this is not because Australia has cut its industry emissions. It is only possible because Australia was given a breather at Kyoto by being allowed to offset emissions by stopping large-scale land clearing in Queensland and NSW. This has now run its course and Australia is about to begin an uphill battle to control rising emissions.

Since Howard reopened the debate on an emissions trading scheme, Turnbull has given it his backing, saying he has "no doubt that there will be a price on carbon". But, like Howard, he has so far refused to discuss any new emissions target. But the public is not yet convinced that the Government is moving quickly enough and is questioning whether a solution worked out almost solely with industry leaders is still tenable.

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